Rupee Bounces Back, Gains Strength Against Dollar
After facing a continuous decline last week, the Indian rupee has made a robust recovery on Monday, showing a strong performance against the US dollar. Reports indicate that the dollar index is witnessing a decline, while India’s third-quarter GDP growth has surpassed expectations, contributing to the rupee’s upward momentum. Notably, despite last week’s losses, the rupee has not returned to its all-time low recorded three weeks ago.
Rupee Gains 9 Paise Against US Dollar
In early trade on Monday, the rupee appreciated by 9 paise, reaching 87.28 against the US dollar. The decline in the US dollar index and positive macroeconomic data in India have played a crucial role in this recovery. Forex traders suggest that foreign capital outflows may slow down, as India’s GDP expanded by 6.2% in the October-December quarter, showing resilience after a seven-quarter low. However, concerns regarding US tariffs, rising crude oil prices, and continued market volatility remain.
The rupee commenced trading at 87.36 in the interbank foreign exchange market and quickly gained strength to settle at 87.28 against the US dollar. This follows Friday’s session, where the rupee had closed at 87.37 after a 19-paise drop.
Declining Dollar Index Boosts Rupee
Meanwhile, the dollar index, which measures the performance of the US dollar against a basket of six major currencies, fell by 0.34%, trading at 107.19. In contrast, last week saw the dollar index gain 0.59%. Over the past month, the index has dipped by 1.62%, while in the last three months, it has strengthened by 0.73%. So far this year, the dollar index has declined by 1.16%, yet it has delivered a return of over 3% to investors in the past year.
Crude Oil and Equity Markets Reflect Positive Sentiment
The global crude oil benchmark, Brent crude futures, saw an increase of 0.59%, reaching $73.24 per barrel. Simultaneously, the domestic stock market experienced a positive trend, with the 30-share BSE Sensex climbing 167.25 points (0.23%) to trade at 73,365.35 in the morning session. Similarly, the NSE Nifty gained 69.65 points (0.31%), reaching 22,194.35. However, despite this bullish movement, data from the exchange shows that foreign institutional investors (FIIs) offloaded equities worth Rs 11,639.02 crore on a net basis last Friday.
India’s Forex Reserves and Economic Indicators Show Growth
Fresh data from the Reserve Bank of India (RBI) revealed that the country’s foreign exchange reserves rose by $4.758 billion, reaching $640.479 billion in the week ending February 21. In contrast, the previous week saw a decline of $2.54 billion, bringing reserves down to $635.721 billion.
Additionally, official data released on Saturday highlighted that gross GST collections surged by 9.1%, amounting to approximately Rs 1.84 lakh crore in February. This increase, driven by higher domestic consumption, signals a potential economic rebound. However, fiscal deficit concerns remain, as data from the Comptroller and Auditor General (CAG) reported that the fiscal deficit had reached 74.5% of the annual target by the end of January 2025. This marks a significant increase from the 63.6% recorded in the corresponding period of the previous year.
RBI’s US Dollar Swap Auction Aims to Inject Liquidity
To enhance long-term liquidity, the Reserve Bank of India conducted a $10 billion US dollar-rupee swap auction on Friday. The auction received a strong response from the market and is set to be settled on March 4 and March 6. Through this swap arrangement, banks sell US dollars to the RBI while committing to repurchase the same amount at the end of the swap period. This move is expected to stabilize market liquidity and support the rupee further.
The rupee’s recent recovery suggests optimism in the Indian economy, backed by positive GDP growth and robust forex reserves. However, global market fluctuations and external economic pressures will continue to play a role in determining the rupee’s performance in the coming weeks.
